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Supply Chain Management

Schindler Manufactures to Order
Anita Devasahayam, 1-Jun-2000

Schindler had an unfair advantage when the management decided to set up a manufacturing facility in Malaysia four years ago.

Being the first production plant in Asia-Pacific region for the lift and escalator company, Schindler Manufacturing (M) Sdn Bhd (SMM) could count on past experiences to ensure that the supply chain infrastructure would be built to suit its corporate objectives.

According to SMMÕs general manager for IT and finance, Alexander Nitsch, the company was vigilant of the need for real-time data to support efficiency and productivity, and the luxury of having the right set of tools to build the necessary foundation.

The easy part for the Swiss manufacturer is global standardisation to use SAP R/3 software running on IBM and Hewlett-Packard hardware systems. The tough part was selecting the right partner to undertake the massive task of getting everything into proper order.

"The implementation and installation exercise has to undergo the typical teething problems before we could get everything off the ground," said Nitsch.

A lot of time was spent on defining the variables in each process, testing them individually and certifying each of them. "The process put in place caters to made-to-order elevators and escalators. This means every unit is built to order."

Nitsch said that the variables tend to differ from one elevator to another or from one customer to another. "There are no two similar elevators or escalators."

A total of 4000 raw materials for escalators and 3000 raw materials for elevators had to be keyed in the central database and cross-linked. Under the system, 3000 parameters were defined for an escalator and 800 parameters for an elevator.

The Malaysian facility's implementation of the SAP system went live in August 1998 and the electronically driven component purchasing process kicked off when 300 suppliers from local sectors and abroad were cut over to the newly-installed system.

"The major benefits for us from using SAP software is
business transparency and shortest lead time to market. It allows us to maintain a low cost position," said Nitsch.

He added that it took the company one year to implement all the processes from "business blueprint to live operation" of the start-up facility.

According to Nitsch, post implementation adjustments turned out without any "big surprise"Ó as the foundation had been carefully laid out, fully tested and was bug free.

Nitsch, who has been with the Schindler Group for eight years, was instrumental in the set of the computing infrastructure for the companyÕs first manufacturing facility in Asia-Pacific located in the northern state of Perak in Malaysia.

Prior to the opening of the plant at the Kinta Free Industrial Zone, Schindler had been actively marketing its lifts and escalators in Asia through the Jardine Schindler Group's distribution network. However, the actual products were shipped to customers here all the way from Europe or US.

Nitsch said that setting up a local facility was in line with the Swiss maker's corporate plan to strengthen its market position and business growth in Asia-Pacific. While SMM's priority is to cater to the Asia-Pacific market needs, it is not excluded from serving the needs of the local and international market.

SMM was incorporated in October 1996 with an authorised capital of RM100 million (US$26 million) and a paid up capital of RM78 million (US$20 million). Nitsch said that the computing infrastructure was laid in parallel to construction of the manufacturing plant.

SMM, a joint venture between Schindler Holding of Switzerland and Jardine Pacific Hong Kong, invested US$36 million in the 27-acre site to manufacture escalators and finished components such as lift cars, door drives and operating panels.

The escalator product line has an annual production capacity of 400 finished units. Key technology components are imported from the Schindler GroupÕs Escalator Division headquarters in Vienna, Austria. Other components are sourced locally.

The elevator line can supply finished parts for 2500 Schindler lifts per year for the Asia-Pacific product lines. SMM is set to expand its manufacturing range to include new lift technology for high-speed and high-performance applications, as well as to cover future market requirements in the area.

Nitsch said that the local design team in-house here were hooked up to the core competence centre in Vienna, allowing them access to some of the best manufacturing expertise available worldwide.

Netting the Customers

Nitsch pointed out that the Asia-Pacific is a heterogeneous market where specifications and needs tend to differ from country to country. "Sometimes a customer specifications can even differ from unit to unit," he added.

However, he said that SMM also offered modular products, allowing customers to choose from various options based on a pre-defined product method. The introduction of the Schindler Esclator Ordering System streamlined the ordering and configuration process. The system allows escalators to be specified and designed with maximum flexibility at the quickest processing and production time possible.

All these had to be factored into the implementation of the SAP R/3 system that was put in place. The construction of an elevator comprised 25 different manufacturing processes while it took 35 different manufacturing process to create an escalator.

However difficult and tedious the task was, time and money invested were justified when the Malaysian facility was able to deliver its first completed escalators to Venezuela in October 1998 - three months ahead of schedule. The first fully assembled lift car was exported in November 1998.

With the major tasks out of the way, the IT team at SMM can concentrate on enhancing functionality, streamlining processes and developing a comprehensive reporting system.

Getting the system integration in the correct order was essential to expedite product fulfilment and to avoid mishaps in future. Delayed fulfilment meant unhappy customers, which is something Schindler cannot afford as it faces stiff competition.

"Our delivery system - from material resource planning, production planning, routing and scheduling is intricately linked to our financials modules system so we have smooth flow of information."

"The management is able to track from their desk the progress of any product from design, customisation to completion right up to delivery," said Nitsch.

The availability of real-time forecasts boosted its supply chain and improved inventory as well as warehouse management.

He added that a key component in the entire process was materials management that was put in place to monitor inventory and progress of materials en route to the factory. Having integrated the supply chain with the business system increased SMM's effectiveness and it is looking towards improving delivery.

Designing Tomorrow

At Schindler, the growing importance of the Internet underlined the corporate objective of reducing cost and growing its customer base.

"We view the Internet as an opportunity to improve and strengthen customer relationship," said Nitsch.

Currently Schindler's operations in the US is actively using the Web for building upon customer relationship. Under the Schindler Customer Score Card initiative, customers can check the status of an order or find information on existing installations such as maintenance intervals and maintenance carried out via the Internet.

The Schindler Customer Score Card reports equipment availability, callback information by unit, plus callback analyses by location and unit. Building owners can view a full history of a service call from start to finish. All the information is updated continually from one common database. Apart from monitoring order and maintenance status, customers are also able to monitor production and shipping process.
Nitsch also said that customers in Europe are able to order their elevators via the Web.

"The development of 'Net applications began in the US and has recently shifted to the Europe. Now as the issue gains importance in Asia-Pacific, we will certainly explore the avenues that are suitable for this environment," he added.

Traditional shipping methods and distribution strategies are also under scrutiny to define the role of the Internet in these areas and to improve the current supply chain model in place at Schindler.
"We must maintain our differentiating factors which is in the design, reliability, easy maintenance and fast turnaround time," he said.

Closer to home, SMM added another feather under its cap when it introduced electronic banking in April to expedite payments.

"By issuing instructions electronically to our bankers, Standard Chartered Bank, we are able to speed up the payment process from three days to under two hours," Nitsch said.

He also pointed out that the electronic banking link with Standard Chartered is the first of the many steps that the company will take as it embraces the new economy that emphasises the importance of

With a current workforce of about 170 employees, SMM has a target of growing the employee base up to 300. Although the manufacturing plant here is not running at full capacity, ramping up is no problem as the infrastructure is already in place.

The company also expects to realise its return on investment in Malaysia six years into the operations. While it does not advocate lean and mean strategy to remain competitive, it does, however, believe in
modular growth.

In 1999, the consolidated operating revenue of the Schindler Group amounted to 7.695 billion Swiss Francs (US$ 4.8 billion). The group has more than 44,000 employees worldwide.

Through fully-owned companies or through the Jardine Schindler Group, Schindler has established its presence in Hong Kong, Indonesia, Philippines, Singapore, Taiwan, Thailand, Vietnam, Myanmar, Brunei, Japan, Australia, New Zealand and Malaysia.

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